US Tariff Uncertainty Poses Credit Risks For Emerging Market Issuers: Moody's

Moody’s noted that while exporters are the most immediately affected by US tariff changes, the broader consequences are more far-reaching

In April, the US administration announced sweeping, country-specific tariffs, which were then paused for 90 days

Source : Freepik

Moody’s Ratings warned on Tuesday that ongoing uncertainty surrounding US trade policy, including the imposition and reversal of tariffs, is creating negative credit implications for debt issuers across emerging markets. These include sovereign entities, corporations, and banks, all of which are being impacted either directly or indirectly.

Moody’s noted that while exporters are the most immediately affected by US tariff changes, the broader consequences are more far-reaching. The volatility in trade policy, particularly the inconsistent application of tariffs, is undermining confidence, slowing economic growth, weakening currencies, and increasing investor risk aversion factors that ultimately affect credit quality across the board.

"The raft of tariffs the US administration has announced, altered, and paused this year has negative credit consequences for debt issuers across emerging markets, including companies, governments, and banks," the agency said. It added that even as some tariff agreements are struck, uncertainty remains a persistent drag on market sentiment and investment decisions.

Geopolitical tensions such as the recent flare-up between India and Pakistan add another layer of stress to emerging markets already grappling with trade disruptions, Moody’s noted.

Country-Specific Tariff

In April, the US administration announced sweeping, country-specific tariffs, which were then paused for 90 days. While a baseline 10 per cent tariff remained in place with exemptions for select sectors, higher tariffs on steel, aluminum, and other goods were maintained. This was followed by a sharp escalation in trade tensions with China, with the U.S. hiking tariffs to 145 per cent on most Chinese imports. China responded with tariffs of up to 125 per cent on US goods.

By May, both nations reached a temporary agreement to lower some tariffs for a 90-day period, reducing US tariffs on Chinese goods to 30 per cent and Chinese tariffs on select US imports to 10 per cent. While this truce has slightly eased pressure on global trade and improved the outlook for global growth, Moody’s cautioned that sector-specific tariffs and unresolved trade issues with other key partners continue to pose risks.

The US has also entered talks with several other nations, recently striking a temporary tariff agreement with the UK. Moody’s expects further discussions to follow, but it considers a complete rollback of tariffs unlikely.

“We expect conversations will open with other countries, but a complete reversal of tariff levels is unlikely,” the agency said.